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Supply Chain

Forced labor: The cost of non-compliance is on the rise

Karen Lobdell  Senior Manager / Product Management / Thomson Reuters

Karen Lobdell  Senior Manager / Product Management / Thomson Reuters

In the global economy, forced labor generates roughly $150 billion of illicit revenue annually, according to the International Labour Organization.

In all countries, corrupt employers and recruiters are increasingly exploiting gaps in international labor and migration law and enforcement. After drugs and weapons, human trafficking is becoming the world’s third biggest crime business and a challenging issue that is rapidly climbing up the list of supply chain risks for global companies.

Although the topic of forced labor within supply chains has become more familiar in the last few years for companies operating globally, recent regulatory activity — as well as actions taken by government agencies such as the U.S. Customs & Border Protection (CBP) — are bringing more attention to this area of risk.

On August 13, the CBP issued a National Press Release announcing that the agency had collected a penalty of $575,000 on a civil enforcement action against importer Pure Circle USA for importing goods made with forced labor. This action is the first civil penalty that the CBP has issued for imports made with forced labor since the enactment of the Trade Facilitation and Trade Enforcement Act (TFTEA) in 2015. The fact that the CBP issued a press release at all in this case is something to note because the agency typically does not make penalty actions public.

Enforcement action

Earlier this year, CBP Executive Assistant Commissioner Brenda Smith stated in a January interview that the CBP was planning to start issuing more monetary penalties related to forced labor. “As we’ve really revamped our approach to enforcing or using our forced labor authority, there are several things that we either want to fix or things we want to amplify,” Smith said in the interview. “I absolutely think that penalties is one of those things.”

In addition, the CBP also issued two new Withhold Release Orders (WRO). The first on August 11 for importing merchandise made with prison labor produced by the Hero Vast Group (including Shanghai Hero Vast International Trading Co.; Henan Hero Vast Garment Co.; Yuexi Hero Vast Garment Co.; Ying Han International Co.; and Hero Vast Canada). The agency issued a second WRO on August 18 to detain seafood harvested with forced labor by the Da Wang, a Vanuatu-flagged, Taiwan-owned distant water fishing vessel.

Clearly, these actions are a sign of the CBP’s larger focus on this area of risk.

The CBP has also taken steps to incorporate forced labor due diligence and remediation into its program requirements for the Customs Trade Partnership Against Terrorism (CTPAT) and CTPAT Trade Compliance program. Final requirements are expected to be published by fiscal year-end, and the agency has stated they will be a must-do for the CTPAT Trade Compliance program.

Enforcement of these regulations are not the only sign of a growing focus on this problem. There is clearly a trend from the regulatory and legislative side that is driving mandates for companies to perform due diligence in this area — or face the consequences.

Indeed, one piece of proposed legislation, the Uyghur Forced Labor Prevention Act, currently being considered in several committees within the U.S. House of Representatives, could, if enacted, deny entry to any U.S. imports which originated to any degree in Xinjiang, China, or which were produced by Chinese suppliers that have participated in a labor-pairing program that offers subsidized employment opportunities for participants in the re-education through labor program. And on Aug. 6, President Trump imposed new sanctions on numerous senior Chinese officials over human rights abuses in the Xinjiang region, which could set the stage for this legislation to move forward.

Reporting on abuse

In many cases, legislative and regulatory actions are driven by the reports or lawsuits made public that call out this activity. For example:

  • In December 2019, Apple, Google, Microsoft, Tesla, and Dell were all named as defendants in a federal lawsuit concerning child labor, injury, and death of children in cobalt mines in the Democratic Republic of the Congo (DRC). Cobalt is a key component of lithium batteries used by the companies’ products, and the majority of cobalt is mined within the DRC.
  • In March, the Australian Strategic Policy Institute published a detailed report documenting the use of Uyghurs forced labor in the Xinjiang region of China. This report is drawing the attention of lawmakers and customs agencies globally.

These types of actions are drawing attention to the issue of forced labor and attempting to move companies to incorporate due diligence to not only prevent its use, but also to incorporate processes to help remediate (if not eliminate) the risk going forward. With corporate social responsibility playing a larger role in consumer buying decisions these days, companies cannot afford the negative brand recognition that can come with failure to incorporate measures to address this risk.

Implementing a solid sourcing strategy not only demonstrates due diligence, but helps your company to avoid fines, penalties, and brand damage. In light of recent events, companies need to evaluate whether forced labor within their supply chains is an issue with which they need to contend. Companies should immediately hold conversations with their key stakeholders to consider a review of internal controls and the possible implementation of automated solutions to help assess and mitigate their risk.


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